Home » GameStop’s (GME) CEO Paul Raines on Q2 2014 Results – Earnings Call Transcript

GameStop’s (GME) CEO Paul Raines on Q2 2014 Results – Earnings Call Transcript

As Tony noted, we are seeing strong growth in console digital, and our model continues to project double digit growth for the foreseeable future. Our internal numbers show that GameStop digital is keeping pace with this growth in the overall category.

In addition to console and PC digital, the category is experiencing big growth in the mobile gaming segment. As you may recall, GameStop entered this growing market in 2013 with Kongregate mobile publishing. We are seeing extremely strong results today.

In the second quarter, Kongregate, our mobile and casual games platform, hosted very strong results, growing plus 123% over the prior year. We currently have 12 games active on the IOS App Store and Google Play Store, with a total of 20 games expected to be launched by year end. We have multiple games running above a $10 million annual rate, and expect Kongregate to be a top-10 third-party mobile games publisher this year.

Through our efforts in the mobile publishing arena, we have learned a great deal about the needs of the development community. Kongregate is providing a value-added platform for mobile game developers, which to date has met with broad acceptance.

In addition to customer acquisition, monetization, and analytics, Kongregate’s $10 million mobile development fund provides much-needed resources for developers to deliver high-quality games. We will continue to focus on serving consumers by helping developers bring great new content into an increasingly crowded mobile games market.

Pre-owned sales grew plus 5.5% for the quarter. This has been an 11-point improvement versus the same quarter last year. This reflects the strength of the new console cycle and consumer demand for preowned. It also reflects the early success of our value strategy, which we first outlined back in the spring.

[unintelligible]’s pre-owned is clearly benefitting from the new console launches. Roughly 30% of our next-generation hardware and software to date has been purchased with the help of trade credits. Consumers continue to see trades as a great way to get the new technology they want.

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Now, a word on the broader value opportunity and the results today. We are leveraging our core competencies and category knowledge, customer relationships, buy-sell-trade expertise, and refurbishment to capture a broader sales opportunity in pre-owned games, as well as an expanded set of technology products.

The results to date are very encouraging. We have seen significant interest from publishers and others in driving incremental sales from a select list of high-demand older games, accessories, and technology. In the second quarter, we sourced over $30 million worth of value inventory, and this value inventory has contributed significantly to our positive growth for the quarter.

Multichannel has a very significant impact on GameStop’s total business, with over 60% of our customers going to GameStop on the web or mobile prior to making a purchase in our stores. Multichannel continues to be a driver of total company performance in Q2, posting plus 49% growth for the quarter.

Leading that growth was our pickup of store business. Consumers can find the product they want online and guarantee availability when they pick up at a store, usually the same day. This also provides an excellent opportunity for the customer to bring additional trades into the store. Pickup in store grew plus 141% for the quarter. This reinforces consumers’ desire for the convenience of web shopping, combined with the GameStop in-store experience.

We continue to invest heavily in mobile and we launched an updated mobile app this summer. We upgraded the entire customer experience and added new functionality such as the trade center, where members can go to learn about trades, look up values, and see current promotions. This addresses the number one customer request for mobile functionality.

The GameStop mobile app has become a key driver of our multichannel business. We now have over 4.4 million installs and average daily users are up 60% over prior year. Our mobile app users spent 81% more, trade 53% more, and buy 79% more pre-owned than the average PowerUp pro member. These are clearly our most engaged customers.

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I will now turn it back over to Tony.

Tony Bartel – President

Thanks, Mike. We look forward to seeing all of our passionate managers in a couple of weeks for a full dose of gaming immersion. As their enthusiasm will attest, the gaming business is healthy and growing. Technology Brands is providing relevant sales and profit growth, and we are excited about the growth path in front of us.

We will now open the call up for questions.

Question-and-Answer Session

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